Funding Secure is giving me the butterflies

Mildly disturbing that someone with an investment website is asking that question, but yes, what agent69 said. 

At the heart of it, the conundrum in marketing P2P loans at the 11-14% range is that they are inherently very very risky, whilst the P2P investor will not tolerate loans that are declared as being >100% LTV because they think they might lose money.

Something has to give, and as the platforms want to have customers/money, what tends to give is the transparency around valuations. That's not to say they're lying, but that the valuations might only apply in special circumstances, or quite often will apply when when a full marketing period is given and without a property being distressed.

Unfortunately, those special circumstances somehow never seem to apply if the loan defaults, and the properties are almost by definition distressed once a loan defaults.

The other classic LTV woe is the Residual Valuation, beloved by FS (and others) for many of their development loans. In these valuations, we disregard the paltry sum the borrower actually paid for the land on the open market, and instead consider a hypothetical end value based upon optimistic assumptions of both revenue (very high) and the cost to build (very low) of said development, thus arriving at the (very very) high "value".

Unfortunately, those assumptions are sometimes proved wildly incorrect. Sometimes so incorrect that the borrower takes what, on the face of it, is a very wise decision on their part and immediately departs for the Bahamas on receipt of funds, leaving lenders to find out just how wildly incorrect the platform was.

So, yes, just to re-iterate, it's what agent69 said, never ever do, not for any platform and under any circumstances.

Which loans are you talking about invest?

"Is the LTV on FS something which can be relied upon at all," ........ Oh Dear, Oh Dear, Oh Deary me.

"That's not to say they're lying," ...... gotta disagree r00lish67, someone's lying, somewhere. 

Thanks for all the feedback, wanted to have a listen to the pulse of the community.  

I wonder how come the FS directors are comfortable about this LTV issue, when probably they are legally obliged to present accurate information (within reasonable bands)

I'm not convinced they are legally obliged but on the other hand I do feel their current T's&C's in many cases would fail under the Unfair Contract Terms Act.

Only the FCA (fat chance of any movement from them), or a legal test case will determine exactly a platform's responsibilities.

To be clear, I'm no lawyer so the above is purely a personal view.

Investing on any p2p platform should be giving you butterflies. If it isn't then most likely you are either incorrectly assessing the level of risk, or are a genuine risk junkie.

LTV's are not to be relied upon, ever. Instead for each loan read as much background as you can, and determine your own worst case fire sale value. Keep monitoring this through the life of the loan as it will change.

Someone has already warned of the risks associated with residual value valuations. A similar warning is needed when LTVs are not expressed as a percentage of current value (however unrealistic that current value may be) but as percentage of the future gross development value (of the completed development). This applies to Lendy in particular. To illustrate both these points I'm going to pick Lendy's Glasgow Car Park with planning permission for a student accommodation block. At present its just a car park, development is due to start in the next few weeks.

The site has been valued on a residual value basis at £5.9m (hence loan of £3.2m is c. 54% LTV) which equates to £40m/hectare. The published government figures for typical land values only cover England, but £40m / hectare is only achieved for land with residential consent in the prime inner London boroughs. Looking at comparable English cities Birmingham northwards a value of a twentieth of that (i.e. £2m/hectare) is perhaps the best that could be anticipated (and yes, yes that would be 1000% LTV = c.£3m loan / c.£0.3m land value). But on Lendy the loan is quoted as 18% LTV (which is actually 18% wrt the GDV of £17.6m).

How much would the site sell for in a fire sale ? Depends entirely on what the purchaser wished to do with the site.
Is the loan good value ? Depends entirely on your assessment of the risk of default.


Disclosure: I'm not currently in the loan (until December it was 10% which was definately poor value), but I'm giving serious thought to buying into this loan now the rate has increased to 12% and once development actually starts.